Study: ObamaCare Insurer Fee Could Backfire On States

Bruce Japsen
, ContributorI write about healthcare business and policyOpinions expressed by Forbes Contributors are their own.

A provision of the Affordable Care Act that requires health insurance companies pay a fee to help fund the law and expand benefits to the poor and uninsured could actually lead to the federal government taxing states and itself, according to a new analysis.

With Medicaid insurance for the poor funded jointly by states and the federal government, the so-called “health insurance tax” used to help fund coverage under the law will “drain $13.6 billion” over the next decade from those states that contract with private health plans to provide Medicaid benefits to poor Americans, a report from actuarial firm Milliman Inc. for Medicaid Health Plans of America shows. It could also cost the federal government even more, the report shows.

“States and the federal government end up paying for the tax due to actuarial soundness requirements,” Medicaid Health Plans said in a statement accompanying the report. “As an important consumer protection, the Balanced Budget Act of 1997 and implementing regulations require Medicaid managed care payment rates to be actuarially sound, inclusive of medical costs, administrative costs, taxes and fees. So according to federal law, the insurance tax must be paid by the state and federal governments through higher payments provided to plans, and results in the federal government taxing states and itself.”

The study is similar to another industry-funded Milliman report issued two years ago that was also funded by Medicaid Health Plans of America.

But the stakes may be higher this time around given more and more state Medicaid programs are contracting with private health insurance companies like
Aetna (AET),
Humana (HUM),
UnitedHealth Group (UNH), Centene (CNC) and Molina (MOH) to provide health benefits to poor Americans. Medicaid Health Plans of America said 37 state Medicaid programs and the District of Columbia contract with health plans to help manage their insurance programs for the poor.

“It is apparent now more than ever: the health insurance tax is an ill-conceived method to finance the ACA and it will be on the shoulders of the country’s sickest and poorest,” said Jeff Myers, president and chief executive officer of Medicaid Health Plans of America.

For its part, the Centers for Medicare & Medicaid Services had no comment when reached Tuesday.

Health plans lately have been forecasting a boon in business providing health benefits to Medicaid patients. But the fee has been among the industry’s concerns in questions from Wall Street analysts and investors on recent earnings conference calls.

As state budgets have been hurt by the stagnant economy, lawmakers have turned more patients eligible for Medicaid over to privately-contracted insurance companies, providing additional revenue to the industry. The health law provides a cash infusion of more than $900 billion in federal dollars from 2014 to 2022 to expand Medicaid programs for states interested in the proposition.

From October through December of 2013, between 1.1 million and 1.8 million people “have newly enrolled in Medicaid” thanks to the health law, according to a report last week from Avalere Health, a research and advisory services firm on health policy issues tracking the Affordable Care Act.